U.S. military bases are massive institutions; the largest bases in the U.S. can hold well over 100,000 people while overseas bases house up to 40,000 individuals.

These bases aren’t just plots of land for the military to set up equipment and run operations from, they’re small cities with complicated logistics and a never-ending need for maintenance and behind-the-scenes operations.

This is where government contractor V2X (NYSE: VVX) specializes. Unlike most military contractors, V2X doesn’t provide products. The company offers logistic and efficiency solutions, technology integration, engineering services, and training.

V2X’s capabilities can be broken down to four main groups. Aerospace solutions involve maintaining and modifying aircraft, vehicles, and weapon systems to ensure they’re in the best condition possible. Technology solutions provide engineering, system integration, and software services needed for a base’s IT network and cybersecurity functions.

Operations and logistics provide infrastructure operations and support so that bases run as efficiently as possible. Finally, in training solutions, V2X designs and implements training programs designed to ensure personnel at a base equally prepared as the hardware and software V2X maintains.

Today, the company aids all branches of the U.S. military in 343 locations and 45 countries. With global tensions rising around the world, these overseas bases are becoming more important than ever before, emphasizing the importance of a company like V2X.

More conflict has led to more U.S. military spending. In 2005, the Department of Defense (“DOD”) was awarded $402 billion for its annual budget. Twenty years later, our defense budget has more than doubled, with the latest budget providing more than $1 trillion to defense.

In all, this gives V2X a market opportunity valued at $180 billion. Moreover, as this company looks to capitalize on its growing market, the company is also positioning itself for higher profitability going forward.

Historically, the majority of V2X’s contracts were cost-plus agreements. These contracts accounted for 68% of the company’s revenue back in 2020, while fixed contracts accounted for 29%.

While cost-plus contracts offer stable margins, fixed rate agreements present an opportunity for higher returns for V2X. This is why the company has committed to shifting its contract mix in the past five years.

Today cost-plus contracts are still V2X’s most used, however, they only account for 56% of revenue, while firm-fixed deals now make up 41% of all contracts.

Despite the company’s transformation into higher-margin contracts and significant tailwinds driving growth, the market has largely ignored V2X. The company’s stock price is up slightly more than 35% in the past five years, trailing the S&P 500 by 65%.

This may be due to investors misunderstanding this business and how its returns have improved since 2020.

As-reported GAAP metrics present V2X as a below-average company that has declined in recent years.

As-reported return on assets (“ROA”) hovered between 4% and 5% in 2019 and 2020 – around the company’s cost of capital. Since then, as-reported returns declined to just 3% in 2024. At a glance V2X appears to be struggling to generate any profits.

However, using Uniform Accounting, investors have a clearer understanding of this company’s profitability, and how it has evolved over the years.

Uniform Accounting reveals V2X has always been more profitable than the market realizes. Uniform ROA was 27% in 2020, above both the company’s cost of capital and the 12% corporate average return.

Moreover, V2X’s ROA has improved to 36% over the past four years as V2X continued to prioritize higher-margin fixed-rate contracts.